GS Fin Update

8/9/2019 GS Fin Update

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March 19, 2010 United States: Financial Services

Goldman Sachs Global Investment Research 3

markets, as its business mix seems FICC-heavy and its valuation remains among the most expensive in the group. Specifically, JEFtrades at 2.5X tangible book, above the historical average of 2.3X and well above the 1.2X for PJC, which is below the 5-yearaverage of 1.5X. Given our expectation that returns on tangible equity at these firms will essentially converge over the next twoyears, we believe a price to tangible book ratio of 2.0X is more appropriate, suggesting 36% upside at PJC and 2% downside for JEF.

Capital Markets: a 2-minute data driven summary

Below in Exhibit 1, we summarize the key investment banking trends in 1Q2010. Most notably, completed M&A is down 40% qoq(on a quarterized basis), though announced M&A is up 19% yoy. Overall DCM is up 30% qoq but is running at a lower pace thanvery robust 1Q2009 levels. There has been notable strength in Agency issuance and High Yield (up 200% yoy), while high gradevolumes are lower yoy. Equity issuance is nearly double the depressed year-ago level, with strength in IPOs and follow-ons.Interestingly, 67% of equity issuance in 1Q2010 is outside the U.S., compared with 56% of debt issuance and 49% of announcedM&A activity. Increasing non-U.S. investment banking activity will clearly benefit those firms with a more international footprint,such as C and MS, relative to BAC and JEF.

Exhibit 1: Investment Banking Summary: M&A activity up yoy, ECM has doubled, but DCM activity down off record levels$ bn or as noted

1QTD(Actual)

1Q10TD(Quarterized) 4Q09 1Q09 QoQ YoY

1QTD(Actual)

1Q10TD(Quarterized) 4Q09 1Q09 Americas EMEA A/P

Announced $564 $686 $729 $576 (6%) 19% 7,197 $8,753 $9,752 $9,310 51% 25% 24%

Completed $366 $445 $737 $629 (40%) (29%) 6,726 $8,180 $9,518 $9,292 50% 29% 21%

High Grade $453 $551 $470 $858 17% (36%) 845 1,028 1,082 1,080 25% 51% 25%

High Yield $66 $80 $93 $27 (14%) 201% 207 252 304 150 65% 22% 13%

ABS $23 $28 $32 $26 (12%) 8% 51 62 97 103 88% 8% 4%

MBS $89 $108 $118 $43 (9%) 151% 92 112 153 105 85% 9% 6%

Agency $272 $331 $192 $250 72% 32% 2,036 2,476 1,986 1,159 100% 0% 0%

Subtotal $902 $1,097 $905 $1,204 21% (9%) 3,231 3,930 3,622 2,597 58% 28% 14%

Total DCM $1,243 $1,491 $1,151 $1,617 30% (8%) 4,052 4,052 4,357 3,293 44% 41% 15%

Conv $16 $19 $35 $7 (46%) 191% 63 77 150 35 48% 31% 21%

FO $72 $88 $231 $63 (62%) 39% 645 784 1,312 457 34% 23% 44%

IPO $27 $33 $63 $1 (47%) 2468% 187 227 270 56 15% 19% 66%

ECM $115 $140 $329 $71 (57%) 97% 895 1,089 1,732 548 33% 22% 45%

Geographic Summary (on $ )Deals/Issues

E q u

i t y

I s s u a n c e

( E C M )

M & A

$ bn % Change

D e

b t I s s u a n c e

( D C M )

Source: Dealogic, Goldman Sachs Research.


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On the trading front, FICC and equities are likely to have divergent sequential results. With the broad FICC platforms, Rates andCredit are likely to be solid. Credit spreads have continued to tighten for most ratings, and the X (credit) indices are largely flatsequentially (Exhibit 10). Moreover, issuance is up 30% qoq, which should support secondary trading activity. Rates volumes at theCME are also up a healthy 22% qoq, and Agency issuance has been extremely robust. Alternately, lower levels of F/X andcommodities volatility will dampen results somewhat. In equities, while trading volumes are up a tad sequentially, volatility anddeal volumes are down, which is likely to pressure equity commissions and trading results.

Exhibit 2: Trading summary: US equity volumes soft, but Rates and Credit trends appear healthy

1QTD(Actual)

1Q10TD(Quarterized/

Avg/ Est) 4Q09 1Q09 QoQ YoY

Trading volumes NYSE and Nasdaq 7,146 7,109 6,754 8,750 6% (18%)

Deal volume FO, IPO, Ann, M&A ($ bn) $664 $807 $1,023 $641 (21%) 26%

Marketperformance

QoQ % nm 0.8% 4.8% -10.2% nm nm

Volatility VIX (quarterly avg) nm 20.9 23.1 45.0 (10%) (54%)

CME volumes 5,171 5,269 4,318 3,843 20% 35%

Implied vol on US & European rates nm nm nm nm (13%) (21%)

CME FX volumes 910 905 755 507 21% 79%

FX volatility 8 nm 10 19 (13%) (55%)

CME Commodity volumes 811 854 751 685 8% 18%

Implied vol on Oil and Nat Gas nm nm nm nm (19%) (37%)

Debt issuancevolumes

DCM ($bn) 1,243 1,491 1,151 1,617 30% (8%)

Credit indices QoQ % nm 0.3% 3.5% -17.0% nm nm

E q u

i t y

% Change

F i x e d i n c o m e

Commodities

FX

Rates

Source: Dealogic, FactSet, CME, Markit, Goldman Sachs Research.


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Exhibit 5: GS estimates versus consensus

Ticker 1Q10E 2010E 2011E 1Q10E 2010E 2011E 1Q10E 2010E 2011E

Large-cap banks

BAC $0.10 $1.00 $2.20 $0.09 $0.81 $1.98 13% 24% 11%C $0.01 $0.10 $0.30 $0.00 $0.04 $0.34 NM 152% (14%)JPM $0.70 $3.25 $5.00 $0.65 $3.01 $4.73 8% 8% 6%MS $0.55 $2.95 $3.60 $0.68 $3.05 $3.48 (20%) (3%) 4%

Mid-cap Brokers

JEF $0.32 $1.45 $1.75 $0.36 $1.53 $1.72 (12%) (5%) 2%PJC $0.55 $2.70 $3.80 $0.61 $2.79 $3.51 (11%) (3%) 8%

Average (4%) 29% 3%

Goldman Sachs EPS Consensus EPS GS vs. Consensus

Source: Factset, Goldman Sachs Research.


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Exhibit 6: FICC revenue could benefit from improved client activityCME trading volumes, global debt issuance and major credit indices

Exhibit 7: Client activity across various products remains strong in 1Q2010ADV volumes; debt issuance for 1Q10 is quarter-ized; QTD change for indices

4Q09 1Q10 QTD

Rates volumes

FX volumes

Commodityvolumes

Debt issuancevolumes

Credit indices

F I C C D r i v e r s

Trends

-3%

14%

-2%

6%

4%

30%

21% 20%

8%

0%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

Debt issuance FX volumes Interest Ratevolumes

Commoditiesvolumes

Credit indices

1 Q 1 0 T D v s .

4 Q 0 9

4Q09

1Q10 QTD

Source: Goldman Sachs Research estimates, CME, Markit, and Dealogic. Source: CME, Dealogic, Markit, Goldman Sachs Research

Exhibit 8: The yield curve remains extremely steep, boosting net interest margin and a variety of carry trade strategies10-year to Federal Funds yield differential

(2.0)

0.0

2.0

4.0

6.0

25-Jun-97 30-Jun-98 6-Jul-99 7-Jul-00 12-Jul-01 23-Jul-02 28-Jul-03 2-Aug-04 4-Aug-05 9-Aug-06 8/15/07 8/6/08 7/29/09

+ Std. Dev: 3.23%Average: 1.60% - Std. Dev: (0.02%)Std. Dev: 1.63%Current: 3.5%



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Exhibit 9: Credit spreads have tightened considerably over the past year, and in fact continued to tighten in 1Q2010, which shouldhelp to drive higher asset pricing on balance sheet itemsin bp

Baa Spread

125

250

375

500

625

750

S e p - 0

5

D e c -

0 5

M a r -

0 6

J u n - 0

6

S e p - 0

6

D e c -

0 6

M a r -

0 7

J u n - 0

7

S e p - 0

7

D e c -

0 7

M a r -

0 8

J u n - 0

8

S e p - 0

8

D e c -

0 8

M a r -

0 9

J u n - 0

9

S e p - 0

9

D e c -

0 9

M a r -

1 0

Avg SpreadQ/Q - (26 bps)

Y/Y - (288 bps)

AA Spread

30

90

150

210

270

330

390

450

S e p - 0

5

D e c -

0 5

M a r -

0 6

J u n - 0

6

S e p - 0

6

D e c -

0 6

M a r -

0 7

J u n - 0

7

S e p - 0

7

D e c -

0 7

M a r -

0 8

J u n - 0

8

S e p - 0

8

D e c -

0 8

M a r -

0 9

J u n - 0

9

S e p - 0

9

D e c -

0 9

M a r -

1 0

Avg spreadChng

Q/Q - 1 bpsY/Y- 140 b s

A Spread

100

180

260

340

420

500

S e p - 0

5

D e c -

0 5

M a r -

0 6

J u n - 0

6

S e p - 0

6

D e c -

0 6

M a r -

0 7

J u n - 0

7

S e p - 0

7

D e c -

0 7

M a r -

0 8

J u n - 0

8

S e p - 0

8

D e c -

0 8

M a r -

0 9

J u n - 0

9

S e p - 0

9

D e c -

0 9

M a r -

1 0

Avg s pread ChngQ/Q - (11 bps)

Y/Y - (187 bps)

BB Spread

0

300

600

900

1,200

1,500

1,800

S e p - 0

5

D e c - 0

5

M a r -

0 6

J u n -

0 6

S e p - 0

6

D e c - 0

6

M a r -

0 7

J u n -

0 7

S e p - 0

7

D e c - 0

7

M a r -

0 8

J u n -

0 8

S e p - 0

8

D e c - 0

8

M a r -

0 9

J u n -

0 9

S e p - 0

9

D e c - 0

9

M a r -

1 0

Avg Spread ChngQ/Q - (88bps)

Y/Y - (933 bps)


Exhibit 10: X indices are largely flat with 4Q09 levels, which should minimize credit marksdata as of March 15

Index (EOP) MCDX IG CDX LCDX 9 HY CDXCMBX 3

('07)ABX 07-1 TABX Avg

1Q09 95.0 95.5 74.1 70.8 59.4 20.0 1.4

4Q09 98.5 100.7 100.0 99.4 76.3 27.6 0.7

1Q10TD 98.7 100.7 100.0 99.6 77.1 27.8 0.7

QoQ 0.2% 0.0% 0.0% 0.2% 1.0% 0.8% 0.0% 0.3%

YoY 3.9% 5.4% 35.0% 40.7% 29.9% 39.4% -46.8% 15.3%

Source: Markit, Goldman Sachs Research.


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Exhibit 11: Primary dealer trading activity is higher since troughing in 3Q2009, and has increased 10% versus 4Q09$ in mn

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

18,000,000

20,000,000

1 Q 0 5

2 Q 0 5

3 Q 0 5

4 Q 0 5

1 Q 0 6

2 Q 0 6

3 Q 0 6

4 Q 0 6

1 Q 0 7

2 Q 0 7

3 Q 0 7

4 Q 0 7

1 Q 0 8

2 Q 0 8

3 Q 0 8

4 Q 0 8

1 Q 0 9

2 Q 0 9

3 Q 0 9

4 Q 0 9

1 Q 1 0 E

Tre as uri es Ag en cy/GSE MBS C orpo ra te

Source: Federal Reserve Board, Goldman Sachs Research.

Exhibit 12: Global debt issuance is up 30% qoq, but down roughly 8% yoy$ in mn; 1Q2010 quarter-ized to assume a full quarter issuance rate

Exhibit 13: MBS is recovering yoy, while sovereign and non-US agency debtis up materially on a sequential basis$ in mn; 1Q2010 quarter-ized to assume a full quarter issuance rate

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

1 Q 1 9 9 8

2 Q 1 9 9 8

3 Q 1 9 9 8

4 Q 1 9 9 8

1 Q 1 9 9 9

2 Q 1 9 9 9

3 Q 1 9 9 9

4 Q 1 9 9 9

1 Q 2 0 0 0

2 Q 2 0 0 0

3 Q 2 0 0 0

4 Q 2 0 0 0

1 Q 2 0 0 1

2 Q 2 0 0 1

3 Q 2 0 0 1

4 Q 2 0 0 1

1 Q 2 0 0 2

2 Q 2 0 0 2

3 Q 2 0 0 2

4 Q 2 0 0 2

1 Q 2 0 0 3

2 Q 2 0 0 3

3 Q 2 0 0 3

4 Q 2 0 0 3

1 Q 2 0 0 4

2 Q 2 0 0 4

3 Q 2 0 0 4

4 Q 2 0 0 4

1 Q 2 0 0 5

2 Q 2 0 0 5

3 Q 2 0 0 5

4 Q 2 0 0 5

1 Q 2 0 0 6

2 Q 2 0 0 6

3 Q 2 0 0 6

4 Q 2 0 0 6

1 Q 2 0 0 7

2 Q 2 0 0 7

3 Q 2 0 0 7

4 Q 2 0 0 7

1 Q 2 0 0 8

2 Q 2 0 0 8

3 Q 2 0 0 8

4 Q 2 0 0 8

1 Q 2 0 0 9

2 Q 2 0 0 9

3 Q 2 0 0 9

4 Q 2 0 0 9

1 Q 1 0 Q - i z e

d

IG HY A BS MBS Sov er eign A genc y Non- US A genc y Supranational

Quarter A B S H Y IG M B S

Non-USAgency So vereign SuprN tl A gency T o tal

1Q08 72,382 23,741 390,936 70,363 75,822 90,511 45,896 265,435 1,035,086 2Q08 85,657 57,350 761,741 86,430 68,047 124,199 40,147 229,657 1,453,229 3Q08 42,576 22,467 318,291 43,801 51,863 42,937 25,111 103,584 650,631

4Q08 16,948 6,949 432,727 36,266 52,236 50,896 22,525 70,078 688,626 1Q09 26,009 27,114 901,546 39,976 132,008 180,108 60,798 249,848 1,617,408 2Q09 52,661 67,654 785,118 107,833 112,704 165,605 65,378 234,313 1,591,266 3Q09 55,039 69,208 574,030 117,847 63,797 129,180 33,145 146,933 1,189,179 4Q09 32,511 94,206 486,865 117,515 73,274 128,795 25,778 191,590 1,150,534 1Q10 27,773 67,434 550,472 106,445 134,257 213,499 63,545 328,049 1,491,474

Q/Q (15%) (28%) 13% (9%) 83% 66% 147% 71% 30% Y/Y 7% 149% (39%) 166% 2% 19% 5% 31% (8%)

Global Debt Issuance

Source: Dealogic, Goldman Sachs Research. Source: Company data, Goldman Sachs Research estimates.


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Exhibit 14: While F/X futures volumes at CME have been healthy, driven by new client types, lower volatility may dampen F/X revenues sequentiallyaverage daily trading volumes for CME, average daily volatility for major currency cross rates

QTR USD-EUR JPY-USD USD-GBP EUR-GBP Avg4Q09 9.4 11.6 11.9 9.7 10.71Q10 QTD 8.6 10.7 9.2 8.4 9.2QoQ -8% -8% -23% -14% -13%

Avg monthly USD-EUR JPY-USD USD-GBP EUR-GBP AvgDec-09 10.9 15.1 10.8 8.2 11.3Jan-10 8.3 11.1 8.7 8.6 9.2Feb-10 9.0 10.5 8.8 8.0 9.1Mar-10 8.4 10.4 10.8 9.1 9.7

MoM changeJan-10 -24% -27% -20% 5% -19%Feb-10 8% -5% 1% -8% -1%Mar-10 -6% -1% 23% 14% 7%

FX trading volumes increase

Monthly average volatility

Quarterly average volatility

FX volatility trend varies by currency

0.00.10.20.30.40.50.60.70.80.91.0

1 Q 0 7

2 Q 0 7

3 Q 0 7

4 Q 0 7

1 Q 0 8

2 Q 0 8

3 Q 0 8

4 Q 0 8

1 Q 0 9

2 Q 0 9

3 Q 0 9

4 Q 0 9

1 Q 1 0

A v g v o

l u m e s

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%50%

Q o

Q c h a n g e

CME FX volumesQoQ change

Source: Markit, CME, Goldman Sachs Research.

Exhibit 15: Commodity trading volumes were up 18% yoy and 12% qoq Exhibit 16: but volatility in pricing was down 19% qoq, which maypressure commodity trading revenuesimplied volatility for oil and natural gas

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10E

CME Energy ICE Energy CME Ags ICE Ags

+18%

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

2 Q 0 3

3 Q 0 3

4 Q 0 3

1 Q 0 4

2 Q 0 4

3 Q 0 4

4 Q 0 4

1 Q 0 5

2 Q 0 5

3 Q 0 5

4 Q 0 5

1 Q 0 6

2 Q 0 6

3 Q 0 6

4 Q 0 6

1 Q 0 7

2 Q 0 7

3 Q 0 7

4 Q 0 7

1 Q 0 8

2 Q 0 8

3 Q 0 8

4 Q 0 8

1 Q 0 9

2 Q 0 9

3 Q 0 9

4 Q 0 9

1 Q 1 0

A v e r a g

e q u a r t e r l y v o

l a t i l i t

Oil Vol

Gas Vol1Q10TD QoQ YoY

Oil -20% -51%Nat gas -18% -24%Average -19% -37%

Implied vol on commodities

Source: CME, ICE, Goldman Sachs Research. Source: Factset, Goldman Sachs Research.


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Our analysis indicates that equity trading revenue for large US investment banks can be forecasted using a multivariate regressionmodel. We have identified key factors that impact equity trading revenue based three variables: (1) average daily equity tradingvolumes for NYSE and NASDAQ; (2) the S&P 500 index level, and (3) global equity issuance and announced M&A activity. Theresults are generally robust (an 85% r squared). In addition to the model variables, we consider market volatility andEuropean/Asian market performance to supplement the quantitative output from our model.

We estimate revenue could decline by 4%-5% sequentially from 4Q2009. Activity in equities has been quiet, with commissionslikely lower sequentially and the primary market not making up for lower news flow. In many cases, banks and brokers haveidentified client activity as a driver of lower revenues in 1Q2010, similar to the pull back in 4Q2009. With announced M&A volumesup but not at the level some had expected, alongside generally low levels of public equity offerings, 1Q2010 results could be soft.The most exposed names in the group to lower equity revenues are Jefferies and Morgan Stanley, as equities account forapproximately 22% and 14% of 2009 revenue, respectively. See Exhibit 17 for an illustration of the key drivers of equity tradingresults.

Exhibit 17: Expect growth in equity trading revenue to be challengingkey factors impacting equity trading revenue

Exhibit 18: Equity revenue could decline if activity does not improveaggregate equity revenue and predicted revenue by multivariate regression model

4Q09 1Q10 QTD

Tradingvolumes Mixed

Deal volumes

Trends

E q u

i t y

t r a

d i n g r e v e n u e d r i v e r s

C l i e n

t A c t i v

i t y

Volatilty

Market performance

$0

$2

$4

$6

$8

$10

$12

$14

1 Q 0 1

2 Q 0 1

3 Q 0 1

4 Q 0 1

1 Q 0 2

2 Q 0 2

3 Q 0 2

4 Q 0 2

1 Q 0 3

2 Q 0 3

3 Q 0 3

4 Q 0 3

1 Q 0 4

2 Q 0 4

3 Q 0 4

4 Q 0 4

1 Q 0 5

2 Q 0 5

3 Q 0 5

4 Q 0 5

1 Q 0 6

2 Q 0 6

3 Q 0 6

4 Q 0 6

1 Q 0 7

2 Q 0 7

3 Q 0 7

4 Q 0 7

1 Q 0 8

2 Q 0 8

3 Q 0 8

4 Q 0 8

1 Q 0 9

2 Q 0 9

3 Q 0 9

4 Q 0 9

1 Q 1 0 E

A g g r e g a

t e c o r e e q u i

t y t r a d

i n g r e v e n u e

( $ b n )

PredictedActual

R-square = 85%

Source: Goldman Sachs Research estimates. Source: Goldman Sachs Research estimates Company data.


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Exhibit 19: U.S. trading activity on exchanges is up 5% qoq but has declined21% relative to 1Q2009 average daily trading volumes for Tape A/B/C shares in bn

Exhibit 20: European value traded is up 17% qoq, and 47% yoy, largelyowing to a major recovery in EU index levelsEuro mn of average daily market capitalization traded

0

3

6

9

12

1 Q 0 7

2 Q 0 7

3 Q 0 7

4 Q 0 7

1 Q 0 8

2 Q 0 8

3 Q 0 8

4 Q 0 8

1 Q 0 9

2 Q 0 9

3 Q 0 9

4 Q 0 9

1 Q 1 0 T D

Tape A Tape B Tape C

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

1Q09 2Q09 3Q09 4Q09 1Q10

V a

l u e

t r a

d e d

( E u r o

i n m n

)

LSE Chi-X Euronext Deutsche Boerse OMX SIX Madrid Other

Source: BATS, Goldman Sachs Research. Source: BATS, Goldman Sachs Research.

Exhibit 21: The VIX has slipped below its longer term average and has fallenfor five consecutive quarters, limiting trading opportunitiesCBOE VIX

Exhibit 22: Secondary trading around global equity issuance should be tepidas issuance appears to have declined more than 50% qoq (but up yoy)in $ mn of equity issued globally

Quarterly VIX t rends

0%

10%

20%

30%

40%

50%

60%

1 Q 0 2

3 Q 0 2

1 Q 0 3

3 Q 0 3

1 Q 0 4

3 Q 0 4

1 Q 0 5

3 Q 0 5

1 Q 0 6

3 Q 0 6

1 Q 0 7

3 Q 0 7

1 Q 0 8

3 Q 0 8

1 Q 0 9

3 Q 0 9

1 Q 1 0 T D

Average: 21%

Global ECM

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

1 Q 9 8

3 Q 9 8

1 Q 9 9

3 Q 9 9

1 Q 0 0

3 Q 0 0

1 Q 0 1

3 Q 0 1

1 Q 0 2

3 Q 0 2

1 Q 0 3

3 Q 0 3

1 Q 0 4

3 Q 0 4

1 Q 0 5

3 Q 0 5

1 Q 0 6

3 Q 0 6

1 Q 0 7

3 Q 0 7

1 Q 0 8

3 Q 0 8

1 Q 0 9

3 Q 0 9

1 Q 1 0 T D ( Q - i z e

d )

Converts Fol low Ons IPOs

Source: Factset, Goldman Sachs Research. Source: Dealogic, Goldman Sachs Research.


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M h 19 2010 U i d S Fi i l S i


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Exhibit 23: CEO confidence at its highest level since 2Q04Conference Board CEO Confidence

Exhibit 24: Which we think has lead to a higher number of large transactionsnumber of announced M&A transactions greater than $10 bn in deal value

20

32

44

56

68

80

2 Q 7 6

2 Q 7 7

2 Q 7 8

2 Q 7 9

2 Q 8 0

2 Q 8 1

2 Q 8 2

2 Q 8 3

2 Q 8 4

2 Q 8 5

2 Q 8 6

2 Q 8 7

2 Q 8 8

2 Q 8 9

2 Q 9 0

2 Q 9 1

2 Q 9 2

2 Q 9 3

2 Q 9 4

2 Q 9 5

2 Q 9 6

2 Q 9 7

2 Q 9 8

2 Q 9 9

2 Q 0 0

2 Q 0 1

2 Q 0 2

2 Q 0 3

2 Q 0 4

2 Q 0 5

2 Q 0 6

2 Q 0 7

2 Q 0 8

2 Q 0 9

CEO Conf idence Average + Std Dev - Std Dev

0

2

4

6

8

10

12

14

16

18

1 Q 1 9 9 6

3 Q 1 9 9 6

1 Q 1 9 9 7

3 Q 1 9 9 7

1 Q 1 9 9 8

3 Q 1 9 9 8

1 Q 1 9 9 9

3 Q 1 9 9 9

1 Q 2 0 0 0

3 Q 2 0 0 0

1 Q 2 0 0 1

3 Q 2 0 0 1

1 Q 2 0 0 2

3 Q 2 0 0 2

1 Q 2 0 0 3

3 Q 2 0 0 3

1 Q 2 0 0 4

3 Q 2 0 0 4

1 Q 2 0 0 5

3 Q 2 0 0 5

1 Q 2 0 0 6

3 Q 2 0 0 6

1 Q 2 0 0 7

3 Q 2 0 0 7

1 Q 2 0 0 8

3 Q 2 0 0 8

1 Q 2 0 0 9

3 Q 2 0 0 9

1 Q 2 0 1 0

Number of announced $10 bn + deals

Average number of $10bn deals per quarter: 7Avg deal size: $22 bn

Source: Haver analytics. Source: Dealogic, Goldman Sachs Research.

Exhibit 25: Improving spreads have also bolstered announced activityannounced M&A in $ mn, spreads AA to 10-year Treasuries

Exhibit 26: And while valuations have improved, they do not appear to berestrictive to announced deal consummationFY1 forward P/E on the S&P 500

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

1Q95 1Q96 1Q97 1Q98 1Q99 1Q00 1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10

D e a

l v o

l u m e s

i n $ m n

0

50

100

150

200

250

300

350

A A c r e

d i t s p r e a d s

( b p s )

U.S. Announced M&A AA spreads over 10 year Treasurys

8x

14x

20x

26x

32x

1 / 1 / 1 9 9 6

1 / 1 / 1 9 9 7

1 / 1 / 1 9 9 8

1 / 1 / 1 9 9 9

1 / 1 / 2 0 0 0

1 / 1 / 2 0 0 1

1 / 1 / 2 0 0 2

1 / 1 / 2 0 0 3

1 / 1 / 2 0 0 4

1 / 1 / 2 0 0 5

1 / 1 / 2 0 0 6

1 / 1 / 2 0 0 7

1 / 1 / 2 0 0 8

1 / 1 / 2 0 0 9

1 / 1 / 2 0 1 0

Curr ent S&P forw ard P/E: 19.0x Aver age: 19.1x + Std Dev: 23.2x - Std Dev: 15.1x

Source: Factset, Dealogic, Goldman Sachs Research. Source: Factset, Goldman Sachs Research.

March 19 2010 United States: Financial Services


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Exhibit 27: Announced U.S. M&A looks to be reboundingannounced M&A as a percentage of market capitalization

Exhibit 28: while Europe continues to fall from peak levels in 2007announced M&A as a percentage of market capitalization

8%8%

10%

12%

9%10%

6%

4% 4%

5%

7%

8% 7%

9%

5%

7%

0%

2%

4%

6%

8%

10%

12%

14%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

US announced M&A as % of market cap

Average: 7.5%

7% 8%9% 10%

19%

15%

8% 9% 9% 9%

12%

23%

32%

23%

17%

11%

0%

5%

10%

15%

20%

25%

30%

35%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

EU announced M&A as a % of Mkt Cap Average

Average: 14%

Source: Dealogic, World Federation of Exchanges, Goldman Sachs Research.. Source: Dealogic, World Federation of Exchanges, Goldman Sachs Research.

Exhibit 29: Cash has increased 37% yoy as firms build their cash balancesfor growth and acquisition activitycash on U.S. corporate balance sheets, excluding financials

Exhibit 30: And Cash now represents 9% of enterprise value, making manycompanies attractive targetscash as a percentage of enterprise value

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1 Q 1 9 9 9

3 Q 1 9 9 9

1 Q 2 0 0 0

3 Q 2 0 0 0

1 Q 2 0 0 1

3 Q 2 0 0 1

1 Q 2 0 0 2

3 Q 2 0 0 2

1 Q 2 0 0 3

3 Q 2 0 0 3

1 Q 2 0 0 4

3 Q 2 0 0 4

1 Q 2 0 0 5

3 Q 2 0 0 5

1 Q 2 0 0 6

3 Q 2 0 0 6

1 Q 2 0 0 7

3 Q 2 0 0 7

1 Q 2 0 0 8

3 Q 2 0 0 8

1 Q 2 0 0 9

3 Q 2 0 0 9

Cash on B/S has jumped over the

past year

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

1 Q 1 9 9 9

3 Q 1 9 9 9

1 Q 2 0 0 0

3 Q 2 0 0 0

1 Q 2 0 0 1

3 Q 2 0 0 1

1 Q 2 0 0 2

3 Q 2 0 0 2

1 Q 2 0 0 3

3 Q 2 0 0 3

1 Q 2 0 0 4

3 Q 2 0 0 4

1 Q 2 0 0 5

3 Q 2 0 0 5

1 Q 2 0 0 6

3 Q 2 0 0 6

1 Q 2 0 0 7

3 Q 2 0 0 7

1 Q 2 0 0 8

3 Q 2 0 0 8

1 Q 2 0 0 9

3 Q 2 0 0 9

Source: Factset, Goldman Sachs Research. Source: Factset, Goldman Sachs Research.

March 19 2010 United States: Financial Services


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Our analysis indicates that investment banking revenue for large US investment banks can be forecasted using a regression modeland Dealogic estimated investment banking fees. In forecasting revenue we have used the following approach: (1) we haveregressed aggregate investment banking revenue for large US investment banks versus industry investment banking feesestimated by Dealogic and (2) We have pro-rated quarter-to-date data to estimate a complete quarter run rate. The model has 88% r-squared and correctly forecasts revenue. As a result of a lower level of completed deal activity so far in 1Q2010, we estimate

investment banking revenue could decline by approximately 30% sequentially.

Exhibit 31: Expect IBD revenue to decline in 1Q2010regression model based on Dealogic fees as of March 15, 2010 and historical aggregate IBD revenue for US investment banks.

$0$1

$2

$3

$4

$5

$6

$7

$8

$9

$10

1 Q 0 1

3 Q 0 1

1 Q 0 2

3 Q 0 2

1 Q 0 3

3 Q 0 3

1 Q 0 4

3 Q 0 4

1 Q 0 5

3 Q 0 5

1 Q 0 6

3 Q 0 6

1 Q 0 7

3 Q 0 7

1 Q 0 8

3 Q 0 8

1 Q 0 9

3 Q 0 9

1 Q 1 0 E

I n v e s

t m e n

t b a n

k i n g

f e e s

( $ b n )

Predicted

Actual

Actual IBD Revenue vs Dealogic Fees

R-square = 88%

We expect Investment bankingfees to decline in 1Q2010

Source: Company data, Dealogic, Goldman Sachs Research.


20/28



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Exhibit 35: M&A activity trends with market performance US announced deal volumes versus S&P500 index

Exhibit 36: and with GDP growthUS announced M&A volumes qoq change, US Real GDP qoq change annualized

0

100

200

300

400

500

600

2 0 0 1 Q 1

2 0 0 1 Q 3

2 0 0 2 Q 1

2 0 0 2 Q 3

2 0 0 3 Q 1

2 0 0 3 Q 3

2 0 0 4 Q 1

2 0 0 4 Q 3

2 0 0 5 Q 1

2 0 0 5 Q 3

2 0 0 6 Q 1

2 0 0 6 Q 3

2 0 0 7 Q 1

2 0 0 7 Q 3

2 0 0 8 Q 1

2 0 0 8 Q 3

2 0 0 9 Q 1

2 0 0 9 Q 3

2 0 1 0 Q 1

U S a n n o u n c e

d M & A v o

l u m e s

( $ b n )

0200

400

600

800

1,000

1,200

1,400

1,600

1,800

S & P 5 0 0 i n d e x

SPX

Volumes

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

2 Q 0 1

4 Q 0 1

2 Q 0 2

4 Q 0 2

2 Q 0 3

4 Q 0 3

2 Q 0 4

4 Q 0 4

2 Q 0 5

4 Q 0 5

2 Q 0 6

4 Q 0 6

2 Q 0 7

4 Q 0 7

2 Q 0 8

4 Q 0 8

2 Q 0 9

4 Q 0 9

2 Q 1 0 E

4 Q 1 0 E

2 Q 1 1 E

4 Q 1 1 E

U S G D P -

Q o

Q

-30%

-20%

-10%

0%

10%

20%

30%

40%

U S M & A a n n o u n c e d v o

l u m e s -

Q o

Q c

h a n g e

USA - Real GDP (QoQ) annualized

US volumes (QoQ)

Source: Dealogic, FactSet, Goldman Sachs Research. Source: Dealogic, Goldman Sachs Research.

Exhibit 37: deals take longer to monetize and most of deal announced but not yet completed in 1Q2010 YTD are above $1 bn

Deal Size Total Deals Avg Duration(days)

Avg Duration(months)

$10 bn+ 131 202 6.7

$5 bn - $10 bn 168 163 5.4

$1 bn - $5 bn 1,153 121 4.0

$0.5 bn - $1bn 1,017 101 3.3


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Exhibit 38: M&A Backlog volumes are highest in Americas but Asia Pacific accounts for approximately 50% of deals in backlogbacklog data is for deals announced since 1/1/2009 that are pending but not yet completed or withdrawn here

M&A backlog volumes by region M&A deals in backlog by region

0

50

100

150

200

250

300

350

400450

500

Americas Asia Pacific EMEA

M & A b a c k

l o g

d e a

l v a

l u e

( $ b n

)

Deal Value

Americas26%

Asia Pacific52%

EMEA22%

Source: Dealogic, Goldman Sachs Research estimates.

Exhibit 39: ECM trends have been much lower qoq but have recovered morethan 100% from trough 1Q09 levels$ in mn

Exhibit 40: While Americas share of issuance has fallen to 31% in 1Q10 from50% in 3Q08share of $ volume of equity issuance

Global ECM

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

1 Q 9 8

3 Q 9 8

1 Q 9 9

3 Q 9 9

1 Q 0 0

3 Q 0 0

1 Q 0 1

3 Q 0 1

1 Q 0 2

3 Q 0 2

1 Q 0 3

3 Q 0 3

1 Q 0 4

3 Q 0 4

1 Q 0 5

3 Q 0 5

1 Q 0 6

3 Q 0 6

1 Q 0 7

3 Q 0 7

1 Q 0 8

3 Q 0 8

1 Q 0 9

3 Q 0 9

1 Q 1 0 T D

( Q - i z e

d )

C on ve rts Fo ll ow On s IPOs

0%

20%

40%

60%

80%

100%

1 Q 9 8

3 Q 9 8

1 Q 9 9

3 Q 9 9

1 Q 0 0

3 Q 0 0

1 Q 0 1

3 Q 0 1

1 Q 0 2

3 Q 0 2

1 Q 0 3

3 Q 0 3

1 Q 0 4

3 Q 0 4

1 Q 0 5

3 Q 0 5

1 Q 0 6

3 Q 0 6

1 Q 0 7

3 Q 0 7

1 Q 0 8

3 Q 0 8

1 Q 0 9

3 Q 0 9

1 Q 1 0

Americas EMEA A/P

Source: Dealogic, Goldman Sachs Research. Source: Dealogic, Goldman Sachs Research.



23/28


Exhibit 41: Global ECM and IPO backlog is building which could provide support to equity underwriting business as markets improveglobal ECM and IPO backlog volumes and number of deals

Global ECM backlog Global IPO backlog

0

10

20

30

40

50

60

3 Q 9 9

1 Q 0 0

3 Q 0 0

1 Q 0 1

3 Q 0 1

1 Q 0 2

3 Q 0 2

1 Q 0 3

3 Q 0 3

1 Q 0 4

3 Q 0 4

1 Q 0 5

3 Q 0 5

1 Q 0 6

3 Q 0 6

1 Q 0 7

3 Q 0 7

1 Q 0 8

3 Q 0 8

1 Q 0 9

3 Q 0 9

1 Q 1 0 T D

b a c k

l o g

0

50

100

150

200

250

300

350

400

# d e a

l s

ECM Backlog ($bn)

# of deals

0

5

10

15

20

25

30

35

3 Q 9 9

1 Q 0 0

3 Q 0 0

1 Q 0 1

3 Q 0 1

1 Q 0 2

3 Q 0 2

1 Q 0 3

3 Q 0 3

1 Q 0 4

3 Q 0 4

1 Q 0 5

3 Q 0 5

1 Q 0 6

3 Q 0 6

1 Q 0 7

3 Q 0 7

1 Q 0 8

3 Q 0 8

1 Q 0 9

3 Q 0 9

1 Q 1 0 T D

b a c k

l o g

0

50

100

150

200

250

300

350

# d e a

l s

IPO Backlog ($ bn)

# of deals


Exhibit 42: Global ECM issuance by product: IPOs as a % of total issuance (24%) is at its highest level in two years$ in mn, 1Q2010 data is through March 15-16.

Quarter Converts Follow Ons IPOs Total Converts Follow Ons IPOs Total

1Q08 31,572 58,821 36,897 127,289 17,010 13,694 23,680 54,384 2Q08 56,222 174,198 34,383 264,803 34,462 49,768 5,175 89,406 3Q08 12,708 112,331 8,259 133,299 6,089 44,964 973 52,027

4Q08 4,894 101,424 3,225 109,544 - 44,196 145 44,340 1Q09 6,541 63,256 1,291 71,087 3,332 9,419 828 13,579 2Q09 30,815 236,487 12,243 279,544 12,500 90,782 1,563 104,845 3Q09 25,875 163,507 38,343 227,726 6,639 29,082 5,110 40,831 4Q09 35,315 230,612 62,900 328,828 12,285 70,924 9,202 92,410 1Q10 19,009 88,042 33,150 140,200 6,254 18,456 3,044 27,755

Q/Q (46%) (62%) (47%) (57%) (49%) (74%) (67%) (70%) Y/Y 191% 39% 2468% 97% 88% 96% 268% 104%

Global Equity Issuance U.S. Equity Issuance




24/28


Exhibit 43: DCM issuance is up 30% qoq and remains at healthy levels vs. depressed levels in 2007-2008$ in mn

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

1 Q 1 9 9 8

2 Q 1 9 9 8

3 Q 1 9 9 8

4 Q 1 9 9 8

1 Q 1 9 9 9

2 Q 1 9 9 9

3 Q 1 9 9 9

4 Q 1 9 9 9

1 Q 2 0 0 0

2 Q 2 0 0 0

3 Q 2 0 0 0

4 Q 2 0 0 0

1 Q 2 0 0 1

2 Q 2 0 0 1

3 Q 2 0 0 1

4 Q 2 0 0 1

1 Q 2 0 0 2

2 Q 2 0 0 2

3 Q 2 0 0 2

4 Q 2 0 0 2

1 Q 2 0 0 3

2 Q 2 0 0 3

3 Q 2 0 0 3

4 Q 2 0 0 3

1 Q 2 0 0 4

2 Q 2 0 0 4

3 Q 2 0 0 4

4 Q 2 0 0 4

1 Q 2 0 0 5

2 Q 2 0 0 5

3 Q 2 0 0 5

4 Q 2 0 0 5

1 Q 2 0 0 6

2 Q 2 0 0 6

3 Q 2 0 0 6

4 Q 2 0 0 6

1 Q 2 0 0 7

2 Q 2 0 0 7

3 Q 2 0 0 7

4 Q 2 0 0 7

1 Q 2 0 0 8

2 Q 2 0 0 8

3 Q 2 0 0 8

4 Q 2 0 0 8

1 Q 2 0 0 9

2 Q 2 0 0 9

3 Q 2 0 0 9

4 Q 2 0 0 9

1 Q 1 0 Q - i z e

d

IG HY A BS MBS Sovereign A gency Non-US A gency Supranational


Exhibit 44: Debt issuance by product$ in mn, 1Q2010 data is through March 16.

Quarter A B S H Y IG M B S

Non-USAgency

So vere ign SuprN t l A gency To ta l

1Q08 72,382 23,741 390,936 70,363 75,822 90,511 45,896 265,435 1,035,086 2Q08 85,657 57,350 761,741 86,430 68,047 124,199 40,147 229,657 1,453,229 3Q08 42,576 22,467 318,291 43,801 51,863 42,937 25,111 103,584 650,631 4Q08 16,948 6,949 432,727 36,266 52,236 50,896 22,525 70,078 688,626 1Q09 26,009 27,114 901,546 39,976 132,008 180,108 60,798 249,848 1,617,408 2Q09 52,661 67,654 785,118 107,833 112,704 165,605 65,378 234,313 1,591,266 3Q09 55,039 69,208 574,030 117,847 63,797 129,180 33,145 146,933 1,189,179 4Q09 32,511 94,206 486,865 117,515 73,274 128,795 25,778 191,590 1,150,534 1Q10 27,773 67,434 550,472 106,445 134,257 213,499 63,545 328,049 1,491,474

Q/Q (15%) (28%) 13% (9%) 83% 66% 147% 71% 30% Y/Y 7% 149% (39%) 166% 2% 19% 5% 31% (8%)

Global Debt Issuance




25/28


Exhibit 45: Geographic distribution for debt and equity issuance and announced M&A deal volumes.% of global DCM, ECM, and announced M&A volumes, 1995-2010YTD

Geographic distribution of Debt issuance Deal volumes Geographic distribution of Equity issuance Deal volumes

Geographic distribution of M&A announced Deal volumes

0%

10%

20%

30%

40%

50%

60%

70%

80%

1 9 9 5

1 9 9 6

1 9 9 7

1 9 9 8

1 9 9 9

2 0 0 0

2 0 0 1

2 0 0 2

2 0 0 3

2 0 0 4

2 0 0 5

2 0 0 6

2 0 0 7

2 0 0 8

2 0 0 9

2 0 1 0 Y T D

%

D C M

v o l u m e s

b y r e g

i o n

AmericasAsia PacificEMEA

0%

10%

20%

30%

40%

50%

60%

1 9 9 5

1 9 9 6

1 9 9 7

1 9 9 8

1 9 9 9

2 0 0 0

2 0 0 1

2 0 0 2

2 0 0 3

2 0 0 4

2 0 0 5

2 0 0 6

2 0 0 7

2 0 0 8

2 0 0 9

2 0 1 0 Y T D

%

E C M

v o l u m e s

b y r e g i o n


0%

10%

20%

30%

40%

50%

60%

70%

80%

1 9 9 5

1 9 9 6

1 9 9 7

1 9 9 8

1 9 9 9

2 0 0 0

2 0 0 1

2 0 0 2

2 0 0 3

2 0 0 4

2 0 0 5

2 0 0 6

2 0 0 7

2 0 0 8

2 0 0 9

2 0 1 0 Y T D

% M &

A a n n o u n c e

d v o

l u m e s

b y r e g i o n




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GS Fin Update

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